Remember those stimulus checks ?
Well, it turns out that people aren’t using them the way the government hoped they would:
MIAMI — The federal government is showering households with tax rebates to spur spending and invigorate a troubled economy. But many Americans are so consumed with debt and the soaring price of gasoline that they are opting to save the money or use it to pay bills, according to surveys, sales data and interviews with people from Florida to California.
Between late April and the end of last week, the Treasury handed out more than $50 billion of the $100 billion in tax rebates it plans to distribute to 132 million households. But only once in the last six weeks have chain stores registered an increase in sales, according to the International Council of Shopping Centers, whose weekly sales survey is a widely watched barometer.
“The initial sense is that people are not running out to the malls to spend their checks,” said Stuart G. Hoffman, chief economist at the PNC Financial Services Group in Pittsburgh. “It’s not quite proving to be a hot potato that’s burning a hole in people’s pockets.”
Here are the details:
Most experts assume that over the next six months, Americans will spend somewhere between 20 and 50 percent of their tax rebates, much like the last time the government took out its checkbook in such fashion, in 2001. That would mean $20 billion to $50 billion in fresh spending washing through the economy.
Given that consumer spending amounts to 70 percent of all American economic activity, such a surge should keep the economy growing at a modest rate through much of the summer, economists say. It would moderate layoffs if companies, buoyed by resurging sales, hang on to workers.
But by late in the year, experts say, the effects of the rebates will wear off, leaving the economy grappling with the same ills gnawing at it now: tight credit, making it hard for businesses to expand and consumers to borrow; a deteriorating job market, which is eroding paychecks; and falling real estate prices.
“We don’t think this will fundamentally cycle up the economy,” said Andrew Tilton, a senior economist at Goldman Sachs. “For a few months, you will see a noticeable uptick, but as you get to the fall and winter that goes away, and then you’re looking at all these unresolved problems.”
The most immediate question is whether the short-term gains will materialize — whether Americans will retain their willingness to consume, even in the face of economic strain.
For months, Americans have heard that the current troubles stem from an extravagant disregard of basic arithmetic. Families have lived in excess of their incomes, floated by credit cards and loans against the value of their homes. Now, the government is imploring Americans to spend anew, presenting a mixed message.
Recent surveys underscore that many households are now too worried about the rising cost of driving and eating to spend freely, even as cash lands in their laps.
In other words, and unlike the political class, average Americans are thinking rationally.
June 1st, 2008 at 5:42 pm
Good news. But would it matter anyway? $100 Billion dollars in tax rebates — how much can it possibly affect the economy where the GDP is $13 Trillion?